This growth stock could be a better buy than Barclays plc

Paul Summers thinks growth-focused investors should check out this alternative to Barclays plc (LON: BARC)

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

It’s roughly 10 years since the beginning of the financial crisis and many private investors remain wary of banking stocks. When you consider the proliferation of scandals, giant fines and boardroom shake-ups since 2007, perhaps this isn’t all that surprising.

Nevertheless, it must be frustrating for holders of stock in FTSE 100 banking behemoth Barclays (LSE: BARC). Just when you think the company may be turning a corner and sentiment returning, momentum is lost. Trading at 250p last October, the last 12 months have seen the shares fall as low as 127p before recovering to trade today at just under the £2 mark.

Notwithstanding any impact from ongoing Brexit negotiations, a rise in base interest rates at the start of November could be the much-needed catalyst for a more sustained rise. Put simply, this will allow the £34bn-cap juggernaut to charge borrowers higher rates while paying only slightly more to savers – a state of affairs that will clearly help its bottom line.

Barclays still looks cheap in terms of its valuation. Trading on 11 times earnings for the current year, this reduces to just nine times earnings in 2018, based on current analyst growth estimates. Another positive is the great improvement in free cash flow in recent times, thereby making it highly likely that next year’s forecast 3.4% yield will be realised.  

But is there a better option?

It may lack Barclays’ history, but seven year-old challenger Metro Bank (LSE: MTRO) continues to win new admirers. Following a “strong trading performance” reflected in today’s Q3 update, I think it may also be a better choice for growth-focused investors.

Over the three months to the end of September, customer deposits at the £3.2bn-cap rose 10% to £955m. At £858m, lending was also 11% higher than seen in Q2. Perhaps most impressively, Metro reported a 77% jump (to £7.2m) in quarter-on-quarter profit, bringing year-to-date underlying pre-tax profit to £13.2m — a huge improvement on 2016’s £12.4m loss. 

When you consider just how popular the bank is becoming, the aforementioned figures make a lot of sense. Over Q3, Metro welcomed 79,000 more customers, bringing its tally of accounts to just over 1.1m — a 33% rise year-on-year. Much of this may be due to the company’s decision to buck the trend seen in the wider banking industry and open new branches. In addition to opening its 50th “store” over the reporting period, the bank has 17 more scheduled before the end of next year, lending substance to chairman Vernon Hill’s comment that Metro was giving customers “a real alternative and a reason to love their bank at last“. 

So is Metro a better growth pick than Barclays? So long as recent price momentum continues, my answer would be in the affirmative. Since coming to the market in March last year, shares have climbed almost 66% in value. With analysts already estimating a huge jump of more than 200% in earnings per share growth in the next financial year (and Metro likely to benefit as much as Barclays from a rate rise), I think the shares still warrant attention, even if a lot of positive news appears already priced in. The fact that the company was able to conduct a £278m placing of 8m ordinary shares in July, at no discount, should give an indication of just how confident the market appears to be on its outlook.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Barclays. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Illustration of flames over a black background
Investing Articles

2 red-hot UK growth stocks to consider buying in April

These two growth stocks are performing well, but can they continue to deliver for investors through 2024 and beyond?

Read more »

Charticle

Is JD Sports Fashion one of the FTSE 100’s best value stocks? Here’s what the charts say!

The JD Sports Fashion share price remains a wild ride during the first quarter. Could it be one of the…

Read more »

Investing Articles

Could the JD Sports Fashion share price double in the next five years?

The JD Sports Fashion share price has nearly halved in the past five years. Our writer thinks a proven business…

Read more »

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

If interest rate cuts are coming, I think these UK growth stocks could soar!

Falling interest could be great news for UK growth stocks, especially those that have been under the cosh recently. Paul…

Read more »

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »